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01 June 2011

Property Report – June 2011

It’s a buyers’ market but the only active people are sellers

by Terry Ryder.
creator of

It’s a buyers’ market but the only active people are sellers  

There’s  more property for sale across Australia than at any time in the past three years.  Melbourne, which had relatively few homes for sales a year ago when the market  was strong, now has record numbers of properties for sale – but few buyers.

This represents folly on the part of both buyers and  sellers. Trying to sell into a flat market makes little sense and ignoring the  opportunities this presents for buyers is equally illogical.

US billionaire Warren Buffett, probably the most  successful investor the world has seen, says: “Profit from folly, rather than  participate in it.”

There are myriad opportunities for investors to profit  from the folly that currently dominates markets across Australia.

I say this with a sinking heart, because I know few  people will listen. Investors will do what they did in 2009 – stay out of the  market awaiting some mythical signal that the market has “bottomed” – thereby  missing the best opportunities to buy at the lowest prices. 

For a detailed analysis of markets nationwide, click on the topics below …


National Overview It’s not interest rates, it’s a crisis of confidence – but not everywhere.
Feature topic The affordability debate has rejected reason and embraced hysteria.
Adelaide Underpinned by a strong economy and affordable homes.
Brisbane There’s a bright silver lining to Queensland’s storm clouds.
Canberra Canberra retains its middle-of-the-pack rating.
Darwin Things pointing down, but the next up may be sooner rather than later.
Hobart Tassie still desperately searching for good news.
Melbourne Melbourne an economic star but beware inner-city apartments.
Perth Resources boom not driving general wealth – or Perth property.
Sydney Change of government gives hopes for economy and property markets.
Conclusion Real estate industry has shot itself in both feet.

National Overview:
It’s not interest rates, it’s a crisis of confidence – but not everywhere

Media  tends to blame interest rates for every scrap of adverse data from the  Australian Bureau of Statistics. It’s the fallback position for writers who don’t  understand their subject and lack imagination, but would like to appear  knowledgeable.

When ABS figures released in  early April showed a decline in housing finance approvals, economists rushed  into print, attributing the fall to interest rates. In reality, it had little  to do with interest rates.

It’s become fashionable for  commentators and writers to say that the real estate market is flat, that there  will be little capital growth this year and that it’s all because of interest  rates.

As is so often the case, the  research proves them wrong. The most recent surveys show that the level of  interest rates is not the key issue in the minds of consumers.

The surveys confirm what the  ABS statistics tell us. Consumers are not spending because their confidence  levels are low. Consumers feel battered by a series of recent events:


Compared to those concerns,  interest rates have faded into the background. The last RBA increase was almost  six months ago, the current levels are not particularly high and the RBA  governor has made it clear he doesn’t plan any more increases any time soon.

So the next time you read an  “expert” telling you the property market is dead because of interest rate rises,  turn the page.

Real estate is not dead. In  many locations, sales activity has fallen and price rises have slowed down or  stopped, but markets continue to do business. In specific locations, markets  are alive and kicking goals.

The problem is  generalisation. Anyone who speaks about “the Australian property market”  clearly doesn’t understand the subject because there is no Australian property  market. There are thousands of different markets across the nation and there  are all moving in different directions and at different speeds.

Some are rising fast, some  are rising slowly, some are marking time and some are falling. Last year  Melbourne had a strong year, Sydney and Canberra had moderate years, Darwin’s  long bull run came to a halt, Perth and Brisbane had minor declines in median  prices and several of our regional markets experienced double-digit growth in  prices.

Consider the latest figures  on capital city prices from RP Data. Melbourne and Sydney had moderate rises in  the 12 months to February, there was no change in Adelaide and Canberra, and  there were declines averaging 4-5% in Darwin, Perth and Brisbane.

Outside the capital cities,  there are strong real estate markets in regional centres such as Gladstone, Mackay,  Newcastle, the Hunter Valley, Bendigo, Warrnambool, Karratha and Port Hedland.

But most commentators will  tell you real estate across the country is flat, with a rise of just 1% in the  past 12 months, because that is the average situation across the eight capital  cities.

Feature topic:
The affordability debate has rejected reason and embraced hysteria

The ratio between incomes and house prices hasn’t  changed much in the past 10 years, according to Reserve Bank governor Glenn  Stevens, nor is that ratio exceptional by global standards. Stevens says he is  not particularly concerned about the level of our house prices.

These are the most  significant words spoken about affordability any time in the last two years. But  you can be forgiven if you don’t know that Stevens said these things, because  Australian media failed to report it (with the exception of The Australian).

Media has reported every  lunatic fringe outburst about Australia having the world’s most unaffordable  houses and every crackpot prediction about our property values collapsing, but  when the official most concerned with monitoring and controlling our markets  issues a calm and rational assessment based on cold hard research, journalists  are disinterested. How sad.

Stevens and his cohorts on  the Reserve Bank board have shown they are more than willing to inflict  interest rate pain if their information tells them inflation is getting out of  control or the property market needs to moderate. But they see little reason to  act at present.

Theirs is the only  independent and expert view available to us, free of vested interests or  political motives or a desire to achieve publicity by feeding something  sensational to the media.

In that regard, they are unique  amongst those participating to the affordability debate. All other  contributions have come from people with ulterior motives.

People who claim our homes  are unaffordable and our values unsustainable need to explain how that is  compatible with the fact that Australia has the highest home ownership rates on  planet Earth. Remember, the ratio between incomes and prices has not changed  significantly in the past 10 years and prices across Australia rose only 3% on  average last year, so it’s not valid to claim this is caused by recent price  escalations.

One bogus report by a  developer lobby group – the Demographia report that claimed we have the world’s  most unaffordable housing – compared Australia with just six other nations and  used inaccurate figures to suit their political purpose. It claimed that  anything with a ratio between annual incomes and house prices above 3 is  unaffordable. That means that if you earn $60,000 and you want to buy a home  for $181,000 you can’t because it’s unaffordable. Or that people who earn $120,000  can’t afford to buy a $361,000 home.

That means 99% of the home  sales in Australia could not take place. Yet they do, day after day. We have  one of the most conservative lending environments in the world yet our  ultra-cautious banks are willing to lend to people on properties with ratios of  4 or 5 – and our mortgage default rate is only 1.5%.

The Demographia report was a  political rant from the lunatic fringe. Here’s an excerpt from the report:  “Unless we are vigilant, high-density zealots will do their best to reverse  centuries of gains and drive us back towards a Dickensian gloom.” Or this from  the report: “The traditional way of life is being slowly crushed under the  bureaucratic iron heel of high-density.”

Does this sound like a  serious research document to anyone?

Yet its claim that we have  the world’s most unaffordable housing was reported in every major newspaper and  media outlet in Australia as fact. No questions asked.

Little wonder that so many  Australians believe our housing values are unsustainable.

Others have jumped on the unaffordability  bandwagon to attract attention, including economists who like to see themselves  on the six o’clock news and the little people with big egos who have proposed a  boycott by first-home buyers.

The issue is so  emotion-charged and so appealing to shallow journalists that anything seeking a  boost to their profile knows that an affordability report with a sensationally  negative finding will always grab media attention.

Recently, I found on the  Internet a global study by a reputable commercial real estate firm, Knight  Frank, which has offices around the world. It looked at prestige property  markets to determine who had the highest prices. Sydney, the most expensive  Australian city, ranked 34th in the world.

Other truly global reports  have found that Australia has not ranked in the top 10 worldwide for price  rises in the past year or the past 20 years.

How many media outlets have  reported these findings? None.

On the same day RBA governor  Glenn Stevens made positive comments about housing affordability, an  organisation seeking publicity published a report with negative findings about  affordability.

Only one major media outlet  reported Stevens’ comments. The report that claimed nurses and teachers can’t  afford to buy anymore received massive airplay nationwide.

What’s missing in this issue  is balance and reason.

Adelaide and South Australia:  
Under-pinned by a strong state economy & affordable homes

I‘m a committed fan of South Australia as an emerging  economy and a market worth considering by property investors. The state has a  rapidly-growing resources sector, a solid agricultural industry, a  nation-leading alternative energy sector and an internationally-significant  defence business. All this underpins the real estate market, where homes  generally are more affordable than in any other state/territory, except  Tasmania.

SA’s economy is performing better in most areas than it was a decade ago.  A  CommSec survey of the states, which analysed key indicators against decade  averages, says SA’s population growth – while slower than the other states – has  shown the most improvement over the past decade. SA has experienced  “historically high” annual growth levels.

SA farmers are  expected to top the nation in the current financial year. A report by the Federal Government’s chief  commodities forecaster shows that SA broad-acre farmers on average will earn  their best income since 2004, driven by increased grain crops (a record $3.4  billion this year) and strong meat exports.

SA is the national leader in renewable energy, with 20% of the  state’s energy coming from renewable sources. By 2020, SA expects to produce  33% of its energy needs from renewables, well ahead of the Federal Government’s  target of 20% by 2020.

One of the things  I like about SA is its ambition. It is proactively seeking to make itself a  centre for education, the No.1 state for construction of defence equipment  (such as the navy destroyers now being built) and a leader in water  sustainability. SA hopes to pull in  billions of dollars worth of water management contracts from the US. A  40-strong contingent of Australian business people, politicians and research  experts attended water forums as part of the annual G’Day USA event in the US  in January, marketing their innovation, research and science capability in  urban and rural water management.

An added strand  to the defence connection is the relocation of a major army battalion to  Adelaide, which has resulted in defence buying 150 houses in the northern  suburbs to house military personnel.

Meanwhile,  BHP Billiton will start expanding Olympic Dam next year.  This project, expected to cost at least $15  billion, has been years in planning and chief executive Marius Kloppers says he  is “ready to move this project forward into execution”. BHP says Olympic Dam  has a life of more than 100 years – double expectations of its operations in  the Pilbara, Queensland or Canada. Olympic Dam has the world’s  biggest uranium resource, along with its copper and gold deposits.

As one example of the impact of this project, the  world’s biggest maker of construction and mining equipment, Caterpillar, is in  negotiations with the State Government to invest in SA ahead of the Olympic Dam  expansion. The talks are the strongest sign yet that the State  Government expects BHP to give the go-ahead early next year to create the  world’s largest open-cut mine.

While  the developer lobby claims (dishonestly, I believe) that we have a serious  shortage of new homes in Australia, no such problem exists in Adelaide. There  have been numerous releases of new land for housing, mainly in the north,  including a recent land release to allow developers to build  3,000 new homes.

Against this  background, the locations I believe deserve special consideration by investors  include Whyalla, Victor Harbor, Port Lincoln and Ceduna outside Adelaide, plus  Seaford, the Elizabeth suburbs and the Tonsley precinct within the capital  city.

Brisbane and Queensland:
There’s a bright silver lining to Queensland’s storm clouds

There were few positives to  be seen in the early months of 2011 as floods and cyclones walloped Queensland communities,  causing loss of life, destruction of property and economic loss. But longer  term those natural disasters will contribute to a looming economic boom.

Home  reconstruction and infrastructure repair will generate a high level of economic  activity and jobs. They will work alongside the emerging resources boom and big  spending on roads, rail links and hospitals to revitalise the Queensland economy.

Short-term,  property values will take a hit in the locations affected by the storms, but  the recovery will be swift. After the 1974 floods in South East Queensland,  values declined an average 10% but within 12 months had returned to pre-flood  levels. This time around, I expect the decline to be less than 1974 and the  recovery stronger.

Qualified  observers expect the earthquake-tsunami disaster to regenerate Japan’s economy  and I predict a similar impact from the natural disasters in Queensland.

A plan for Queensland’s  recovery from floods and cyclones was unveiled by the state’s reconstruction  taskforce in March, with plans for “mission accomplished” by the end  of 2013. An immediate cash  injection of $220 million has been pledged for 18 Queensland councils to  kick-start the reconstruction effort. Premier Anna Bligh outlined the timetable  to rebuild Queensland, with reconstruction covering three phases. Phase 1, to  end in June, involves transition from immediate post-disaster response to  short-term recovery. Phase 2, from June this year to December 2012, will cover  the methodical reconstruction and enhancement of all flood and cyclone-affected  communities. Phase 3, from December 2012 to the end of 2013, will be a  progressive handover of reconstruction responsibilities to agencies such as the  State Government and local councils.

An analysis by Deutsche Bank chief  economist Adam Boyton shows that, if the boost to coal prices is included in  calculations, the economy may on some measures end the year larger than it  would have without the floods. Boyton believes the potential impact of the  floods on the Federal Budget has been exaggerated, with the total public sector  cost of reconstruction unlikely to be much greater than $3 billion.

The biggest economic damage is likely to be  recorded in the first three months of the year, reflecting the temporary  suspension of coal shipments and the interruption to business in Brisbane.  However, growth will recover strongly in the second half of the year, boosted  by reconstruction efforts.

Workers will  begin a mass migration around the state as Queensland’s key employment sectors  bear the brunt of the flood recovery. While builders expect a boom for their skills in the state’s  largest-ever rebuilding job, workers in the tourism and farm industries fear a  downturn in demand. Armies of tradespeople are expected to descend on 20 or so  flood-ravaged towns for the next three years.

Thousands of  unemployed workers and out-of-trade apprentices will be offered cash assistance  and jobs to help rebuild Queensland. A federal-state $83 million fund to help employers and workers  includes a cash bonus of $3,350 to small businesses who take on an eligible  apprentice to join the reconstruction effort. Apprentices will also be offered  a relocation allowance to move to regional flood-affected areas.

Looking beyond the reconstruction effort, around  10,000 new jobs may be created in Central Queensland by about 50 Bowen Basin  mining projects in planning, with a potential value of $20 billion. Rockhampton,  Mackay and other regional centres are well-positioned to capitalize. Half the  projects are well-advanced and include 12 new mines and 12 expansions of  existing operations.

Queensland has another  15,000 construction jobs in the pipeline after a third big gas project in  Gladstone was approved by the Federal Government. Origin Energy’s Australia Pacific LNG joint venture  with ConocoPhillips needs only board approval before it will create 5,000 jobs  during the next four years. The work will be on a $16 billion export facility  with the potential to expand dramatically to a cost of $35 billion and generate  as much as $150 billion in sales. Two other projects, led by Queensland Gas and  Santos, are also in the early construction stages, each promising up to 5,000  jobs.

Santos says the cyclones and floods won’t slow down  its major GLNG project. The project is a joint venture one with Petronas of  Malaysia and Korean gas company Kogas, investing $16 billion to take coal seam  gas from the inland town of Roma and pipe it to the port of Gladstone.  There it will be turned into LNG, liquefied  natural gas, at a rate of 8 million tonnes a year. The gas will be exported to  Asia from Curtis Island. Spokesman Matthew Doman says the company is confident  it can stick to its timetable.

The markets most likely to benefit from this  investment are Gladstone, Toowoomba and Dalby.

Canberra and the ACT:  
At the risk of repeating myself, Canberra retains its middle-of-the-pack rating

The  ACT has the tightest job market in the country and almost half of vacancies go  unfilled, according to the Department of Employment and Workplace Relations.  Its latest skills shortage analysis found ACT employers reported just 1.2  suitable applicants for every job advertised last year. Only 54% of vacancies  were filled in the ACT, whereas nationally, employers filled 61% of their  vacancies.

Employment growth in the past  12 months was 3.3%, better than the national average of 2.8% and the second  highest in the nation.  The unemployment  rate is 3.4%, the second lowest in Australia and well below the national  average.

The employment situation in the ACT  helps to explain why Canberra has one of the steadiest real estate markets in  the nation.

Another reason is strong population  growth. Canberra is in the  midst of a baby boom, according to the ABS. While most states and territories  experienced a boost to birth numbers in 2010, the ACT had the largest increase  at 8.4%. Natural increase – the number of births minus the number of deaths –  was the major component of the territory’s population growth at 58%, or 3,700  people. Figures also showed that the overall population growth rate for the  ACT, 1.8%, was higher than the national average at 1.7%.

A third element is high incomes, with  the ACT having the highest average incomes in the nation. Population growth,  high incomes and low unemployment add up to a solid property market – which in  turn feeds back into the Territory economy.

The ACT’s real estate market is being  credited for a dramatic turnaround in the territory Government’s finances.  Treasury’s mid-year Budget update sees an expected $83 million deficit in  FY2011 revised down to less than $6 million. The ”peak deficit” in FY2012 is  tipped to shrink from $135million to $60 million as stamp duty, land tax and  Land Development Agency dividends continue to be the Government’s best earners.

The ACT is expected to continue  experiencing strong housing activity in 2011 after recording a 75% increase in  housing starts for the December quarter. Work began on about 1,700 new  dwellings in the ACT during the last three months of 2010, whereas housing  starts fell in all other states and territories. Approvals for new homes in the ACT rose 41% in  the 12 months to January, easily the highest rise in the nation and well ahead  of the national average of 13.3%. This included a 5.1% rise in January, also  the best result among the states & territories.

Meanwhile, there have been two recent  announcements of particular relevance to property investors. One is the search for Canberra’s new diplomatic  precinct, with established consular suburbs bursting at the seams and emerging  nations seeking to establish embassies. The National Capital Authority says at  least 25 new embassies will be needed, in addition to the 96 nations that  already have a consular presence. The authority says it is scoping out new  sites to be designated as official diplomatic zones, but will not say which  suburbs are being considered.

The other key announcement is that the ACT  Government is accelerating the urban infill process in the city’s inner north.  A Legislative Assembly committee recommended the end to a decade-long  moratorium on development in the suburb of Turner. The Standing Committee on  Planning and Public Works’ report on residential zoning in the inner north also  says higher density residential development should be allowed – currently  development is restricted to two storeys.

Chief Minister Jon Stanhope claims the  community is behind the Government’s push for greater urban densification. He  has released a report which says Canberra will resemble other capital cities by  2030. The Government report Time to Talk:  2030 outlines the Government’s intent to increase densification in urban  areas and limit urban sprawl. ”Canberrans want infill to occur in carefully  chosen locations, so that it occurs not for its own sake, but in order to  improve access to services for residents, so that it broadens housing choice,  rather than narrowing it, and so that it creates more affordable housing  options for those who are not served well by the existing market,” Stanhope  says.

Darwin and the Northern Territory:  
Things pointing downwards but the next up may be sooner rather than later

Darwin’s real estate party is over – or has paused for  a breather. Price growth has stopped and, let’s face it, it had to after so  many years of big growth. I’ve been expecting it, and warning about it, but  can’t claim to be have predicted it accurately because it took longer to get to  this point that I expected.

I suspect that the pause  will be temporary and market watchers should keep a close watch on Darwin. The  big kicker for Darwin’s near future is the $12 billion Inpex gas project and  this appears increasingly certain to go ahead. Company president Toshiaki Kitamura said in March an  agreement to sell the gas would be signed within two months. And a global  broking house predicted the project would be given approval and urged investors  to buy shares – even if the price soared. Kitamura confirmed that Inpex would  make a final investment decision towards the end of this year and gas  production could begin in 2017.

The impact of a project of that size on a relatively  small city would be immense.

In the short-term, however, the Territory’s stocks  have fallen somewhat. Consider the following measures of the Territory economy:

On the  positive side, there are some significant infrastructure projects in the  pipeline, including a major new prison and a big facility for asylum-seekers. The detention  camp being built on the outskirts of Darwin is expected to boost the Territory  economy – hundreds of millions  of dollars will be spent on maintaining and serving the 1500-bed camp at  Wickham Point.

Beyond Darwin, the local economies in Alice Springs,  Tennant Creek and Katherine remain quite vibrant. The Alice’s social problems,  relating to alcohol-fueled violence, are also proving to be an economic asset  because the influx of workers associated with government programs is creating  strong real estate demand, leading to big increases in rents and prices in the  past 12 months.

Tennant Creek is expecting a significant boost from a  phosphate mine in its region, which will involve construction of a pipeline and  rail link from the mine site to the town.

Hobart and Tasmania:  
Tassie still desperately searching for good news

Tasmania continues to  generate more pessimism than optimism. Its problems start at the top, with an  unsteady Labor Government governing with the tenuous support of the Greens. David  Bartlett recently became the third Tasmanian premier to quit mid-term in the  past six years. Lara Giddings is the new Premier and she has warned of tough  economic times and Budget cuts.

An economic  report suggests the likelihood Tasmania will slip into a recession. Access Economics says the latest retail  data shows Tasmania lagging behind every state or territory. Tasmania was the  only state or territory to record negative retail growth figures in the 12  months to February and has recorded 14  consecutive monthly slumps in retail sales.

Tasmania has the slowest population growth  and the worst employment numbers in the nation. Its building approval figures  are also the worst among the states/territories. Not surprisingly, Hobart’s  median house price has dropped 7% in the past 12 months.

The  jobs of nearly one in 10 Tasmanian public servants are under threat after new  Premier Lara Giddings announced $430 million in cuts to the state’s Budget. Three weeks after becoming  Premier, Giddings warned that the cuts, over four years, were vital if the  island was to avoid sliding back into the economic malaise of the 1990s. And  she warned of more pain to come in the June Budget, describing the immediate  cuts as merely “day one” of a new austerity drive.

The Retirement  Benefits Fund, which manages superannuation for more than 75,000 state public  servants, will axe nearly half its staff and send the work interstate. Fund CEO Philip Mussared has confirmed 85  jobs from a total 190 positions will be affected.

Hydro Tasmania will sack 50  staff over coming months, saying the  redundancies are part of a “continuous improvement by refinement of its  organisational structure”, which would lower operating costs.

Tasmania’s hopes for  economic revival rest largely on the fate of the Gunns pulp mill which has been  struggling for seven years to get the approvals it needs. In March, after deliberations  by three federal ministers, court challenges and endless controversy, Gunns  finally achieved a green light from Canberra. However, in keeping with the long-running saga, an  11th-hour hitch emerged that may yet stymie the $2.3 billion project. Hours  after Federal Environment Minister Tony Burke declared the mill had cleared the  final environmental hurdles, it emerged that the company was having difficulty  meeting existing state permit conditions.

Gunns is offering new  concessions to woo opponents of the pulp mill, including an independent panel  of experts and locals to monitor its operations. The timber company says it will set up an independent  reference group of Tamar Valley residents and mill experts to monitor the  plant’s emissions and operations. As well, a 40% reduction of chlorine  emissions and a guarantee not to feed the mill with native forest woodchips  would be enshrined in amended federal permits. Gunns managing director Greg  L’Estrange says the improvements — urged by green groups and mill opponents in  private talks — are aimed at addressing local opposition to the project.

One positive  event for the property market from the past few months was the announcement of  a new suburb to be developed in Hobart by a Korean developer. MBKim Group plans  to build a $500 million development with housing, offices, a language school  and recreation facilities.

Melbourne and Victoria:  
Victoria is an economic star but beware inner-city apartments

Victoria is the nation’s economic success story. We  expect Western Australia and Queensland to lead the country in population  growth and economic activity because of the impetus they get from resources  activity. But Victoria has climbed to the top of national economic tree without  any major resources contribution.

Victoria’s  population growth rate continues to be above the national average, with its  population rising 1.8% last year to reach 5.55 million. Employment grew 3.7% in  the 12 months to January, the highest growth rate in the nation and well above  the national average.

Growth in retail spending for the year ending January  was 4.3%, the highest growth in the nation and well ahead of the national  average of 2.4%. Retail turnover in October was $5.2 billion.

Victoria’s State Final Demand was $77.8 billion in the  December Quarter, second only to NSW. SFD rose 4.4% in 2010, the second highest  growth rate in the nation and well above the national average.

Housing finance commitments by owner-occupiers in the past  12 months represented the best result in the nation. Loans to investors in  Victorian homes grew 16.5% over the year to January, the second highest growth  in the nation and compared with a national average growth of 2.1%.

Residential approvals rose 24% in the past year, the  best result in the nation. The number of residential approvals in January was  easily the highest in the nation, well ahead of NSW and Queensland.

That’s a pretty good result from a non-resources state  in a national economy driven by mining. Victoria’s strong economic performance  helps to explain why Melbourne was the leading capital city for price growth  last year.

It won’t repeat that performance this year but the  long-term prospects for the state and its property markets remain strong.

There’s one key area where investors need to exercise care.  There’s a looming over-supply in inner-city apartments which may threaten  values and rental levels.

There are around 13,000 new apartments in the pipeline  for the Melbourne CBD, Docklands and Southbank, with 2,300 already under  construction. Developers will proceed with projects as long as they can sign up  sufficient numbers of off-the-plan buyers and investors need to be wary.  Melbourne has had over-supply issues in the recent past and faces a return to  that scenario.

Perth and Western Australia:
Resources boom not driving general wealth – or Perth property

Western Australia is immersed in the greatest resources  boom in its history. But many sectors of the state economy are struggling and  Perth’s property market is not growing.

It’s the job of government  to ensure that economic growth translates into prosperity in the wider  community. If all that accrues from the WA resources boom is higher profits for  BHP Billiton and Rio Tinto, the process will be failing the citizens of the state.

It’s odd that Perth home  prices remain generally stagnant, given the impetus in the state economy. The  market peaked in 2007 and there have been three down years since then. The  market is overdue for recovery and the strength of the resources sector should  be providing impetus. But we haven’t seen evidence of it to date (although key  regional centres are growing strongly).

Many of the raw numbers  suggest WA is going gangbusters. It has the lowest rate of unemployment in the  nation, the highest overall economic growth and the highest population growth. The market value of WA’s 100 largest  companies rose 14.7% during 2010, outperforming most other market indices, and  finishing the year at $192.5 billion.

But key sectors of the state  industry are struggling, notably manufacturing and retail. It’s the classic  two-speed economy – anything related to resources is thriving and everything  else is being left behind.

Australian iron ore exports, much of which  come from WA, will climb another 12% next financial year, to a record $63.1  billion, the Australian Bureau of Agricultural and Resources Economics  predicts.

BHP has announced  a $13 billion expansion to its Australian coal and iron operations, as the  latest in a series of mega announcements for the resources sector. Half of the spending will go toward rapidly  expanding its iron ore operations in the Pilbara region, with mine, rail and  port developments to support output growth to more than 220 million tonnes per  annum.

Higher  iron ore prices and increased royalties have helped deliver a $2.1 billion  windfall to the State Government, which is now on track for a Budget surplus  not seen since the last resources boom petered out in 2008. In March the Government  reported an operating surplus of $1.1 billion for the first six months of  FY2011, up from a $259 million operating deficit in the same period for FY2010.  The figures have created hopes for a return to the boom-time surpluses leading  up to the GFC, which peaked in FY2008 at $2.51 billion.

None of this wealth is doing  much for the property market. Housing  loan commitments for owner-occupiers in WA fell 22% in the past 12 months.  Housing loans to investors fell 14%, compared with the national average rise of  2.1%.

Home approvals have shown a slight improvement, but  the year-on-year growth of 3.2% is well below the national average growth of  13.3%.

Sydney and New South Wales:
Change of government gives hope for economy and property markets

From a  political standpoint I don’t care who governs New South Wales, as long as they  do a competent job. The former Labor administration was a long way short of  competent and clearly most NSW voters thought so. The biggest election  landslide in living memory gives NSW a chance to regain some of its lost status  as a national leader and the Sydney market some prospect of catching up.

That all depends on whether Barry O’Farrell and his  mates can deliver on their election promises. The most important ones relate to  infrastructure, something Sydney and NSW needs in larges doses. If Adelaide,  one-fifth the size of Sydney, has more infrastructure development happening  than does Sydney, something is wrong.

But the cost of these big-ticket items, and the  economic mismanagement of the previous government, will make the task  difficult. There will no dramatic turnaround in the short-term.

Possibly the first sign of impact on property markets  will be a rise in consumer confidence. This is the key factor impacting on real  estate – not, as many journalists would have us believe, interest rates. Simply  by virtue of the end of a government that was an embarrassment to many NSW  residents, we should see a lift in spirits which will translate into greater  spending and more real estate activity.

Ironically, the parlous situation in NSW has led to it  getting a bonus $1 billion in GST revenue. This is because it has been a poor economic performer, with below  average growth and low wages, and needs to be propped up by the other states. The  state received a poor report card from the Commonwealth Grants Commission, the  independent statutory body which each year distributes GST revenue. It finds  that of the four big states, NSW has the weakest economic capacity and  therefore needs a steady stream of GST revenue. How embarrassing for the state  with Australia’s largest state economy and population.

Underneath that generalized situation there are  locations going well, despite everything. The Hunter region, for example, is in  the midst of a civil engineering boom with $2.6 billion worth of work under way  and more than $13 billion in the planning stages. A shortage of trucks,  operators and earthmoving equipment has brought interstate and Sydney-based  firms flocking to the Hunter region in an effort to secure work, according to  reports.

Hunter Valley Research Foundation principal research  fellow Simon Deeming says the labour market in the resources and infrastructure  sectors is “ridiculously tight” and says the boom was enhancing the  region’s position as one of Australia’s leading engineering centres. Leading  Australian construction analyst Cordell Information said there were a further  310 major civil projects in the pipeline for the region, with most of those  planned for the Newcastle local government area. The boom is being led by mine  expansion, major road and rail projects, and BHP-site remediation work.

It’s for reasons like these that the Hunter  Region and Newcastle both feature prominently in a number of my Hotspotting  reports. Most of the markets throughout this area are affordable and the growth  prospects are strong.

Real estate industry has shot itself in both feet

The key factor constricting real estate  activity is not interest rates. It is a crisis of confidence among the citizens  of Australia.

In particular, consumers lack confidence in real  estate because of negativity about the industry by the industry. The No.1  source of pessimistic news about real estate is the real estate industry itself,  especially the developer lobby.

Lobby groups which represent builders and developers  have been pushing a campaign of complaints against government for the past 2-3  years. There is daily distribution of press releases by the Housing Industry  Association, the Master Builders Association, the Urban Taskforce and others,  claiming we have a chronic shortage of housing, that land supply is restricted,  that new homes cost too much because of government policies and that our  housing prices are unsustainable.

The objective is to bully government into reducing  taxes, eliminating stamp duty, axing infrastructure charges, releasing lots of  cheap land and giving developers fast approvals without scrutiny.

At the core of this campaign is a fundamental lack of  ethics. Development industry leaders know we don’t have a shortage of 120,000  houses. If we did, thousands of families would be sleeping in tents, there  would be queues at open houses and display villages, vacancies would be zero in  our biggest cities, rents would be rising 15-20% a year and average house  prices would have increased 20% last year (they rose 3% on average across the  country).

The bottom line is that the campaign has not succeeded  in extracting major concessions from the federal or state governments. It’s  only outcome is a stream of negativity about real estate which has helped to  destroy public confidence in the market.

The industry has shot itself in both feet.


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